Arriving at 1 Angel Square, the Co-operative Group’s £105m glass-covered Manchester headquarters on May 1, Euan Sutherland was trying to be a little different.

On his first day as chief executive-designate, the former Kingfisher chief operating officer chose not to wear a tie. “I came in, walked into this brand-new building, and I was not wearing a tie. And that was quite something,” explains the softly spoken Scotsman. “But since then, that was the least radical thing I’ve done.”

Sutherland spent the morning of his first day in a meeting of the mutual’s executive committee. He then began what he thought would be a series of one-on-one meetings with his direct reports. “We started with Barry [Tootell, then chief executive of the Co-op Bank] and I haven’t got to the second one-on-one yet.”

The next day he called Andrew Bailey, chief executive of the Prudential Regulation Authority, as it became clear that the mutual’s banking arm was facing a £1.5bn tier one capital shortfall, which needed to be filled by the end of the year.

For Sutherland, a marketeer and retailer who has spent his career working with some of the best known brands – Coca-Cola, Mars, Superdrug and Boots - it was a proverbial baptism of fire.

“I was very conscious I did not have the banking background. My name got elongated in the first month by the media: it was 'Euan Sutherland with no formal banking experience’, it was never quoted alone.”

He quickly surrounded himself with people who did. Richard Pym, the chairman of UK Asset Resolution and former chief executive of Alliance & Leicester, was recruited as an adviser on Sutherland’s fourth day, and promoted to bank chairman when Sutherland asked the incumbent, the Reverend Paul Flowers, to step down.

Niall Booker, HSBC’s former US head, was recruited to run the bank when Tootell decided to leave, and Richard Pennycook, the former Wm Morrison finance director, was hired as group finance director to work alongside Sutherland.

Unlike Sutherland, at least each of the new recruits was aware of the £1.5bn hole when they agreed to take the job. Sutherland explains that he signed on the dotted line for the Co-op job, replacing the retiring Peter Marks, in the first week of December 2012.

Did he undertake any due diligence on the bank before deciding to leave Kingfisher, a decision he admits was the result of his mentor Ian Cheshire, the chief executive, committing to stay on for a few extra years?

“I did it on the group, including the bank. And the numbers said the trading group was going to make a profit, and it has done, and that the bank was going to make a profit, and it hasn’t.

“My due diligence said the bank is OK. It’s hard now to think back to the details, but that Verde [the plan to merge the Co-op Bank with 631 Lloyds branches] was going OK, and so this was going to be a much bigger bank as part of a pretty big group.

“In January came the communications around capital adequacy from the regulator, so I was already announced [as CEO] then, but I was working for Kingfisher until the end of March.” It was while on holiday with his partner and four sons in Sharm-el-Sheikh that he discovered the bank was pulling out of the Verde deal.

Did Marks give him any warning? “No,” he replies.

Within a fortnight, however, it was Sutherland’s turn to surprise Marks – the Co-op lifer who had worked for the mutual for 46 years. Marks was told he would no longer be remaining as chief executive until the group’s annual meeting on May 18, as initially planned.

“On the back of the Moody’s downgrade, I had to ask for official chief executive powers rather than sitting about for a couple of weeks. So I did have to phone Peter up, who I think was in La Manga playing golf.

“He committed his whole life to the Co-operative and he did what he thought were the right things. I’ve not commented on Peter or any of the previous management team and I guess it’s not for me to do that,” says Sutherland.

Instead he set up an independent inquiry, to be led by the former Treasury official Sir Christopher Kelly, to find out what went wrong and why. “We set up the Kelly inquiry not to avoid stuff but to get into it. And I will take on what Kelly says and put it into governance, ways of working, and we’ll learn the lessons,” he vows.

For the six months since arriving at 1 Angel Square, almost every waking hour of Sutherland’s time has been spent on ways to fill the bank’s black hole, culminating in last Monday’s announcement that will hand 70pc of the bank’s equity to a disparate group of US distressed debt funds and other institutional investors.

Sutherland explains that the funds – including vulture funds Aurelius Capital and Silver Point – bought into the bank’s Tier Two bonds after the decision by the ratings agency Moody’s to downgrade the bank bonds by six notches to junk status on May 10.

“I think it was classic behaviour,” says Sutherland. “They come in, and watch for those big drops, and then they evaluate is it going to be something they can make a return on?”

By mid-June, Sutherland had put forward a strategy to fill the hole, involving £1bn of group funds and a £500m haircut.

But the plan that was put forward last Monday – on which a mixture of retail and institutional bondholders must now vote in early December – is quite different, the work of four weeks of negotiations led by Sutherland and his new executive team alongside bankers UBS and law firm Allen & Overy.

The mutual will retain a 30pc stake, in return for injecting £462m, while the tier two bond holders, including the 12 vulture funds, will end up with a stake of 70pc in return for their existing bonds and a £125m rights issue.

Some 12,000 retail bond holders will be offered the choice between maintained interest payments for 12 years or a larger capital sum. To fund this, the Co-op Group apportioned £129m of its £462m injection for the retail investors.

It was that last part of the plan that, Sutherland explains, proved the most controversial. “It was the biggest, most intense part of the negotiations. They [the funds] were concerned that anything that saw people below them in the [capital] waterfall receiving more than they were entitled to was a violation of their business model.

“It was difficult, because we were saying 'It’s our money, and we want to spend it in this way’ and they were saying, 'Well that’s not how it’s done’.

“I went in, very late one night at Allen & Overy’s offices that we were using as a base, and explained it to them. I said, 'I’m sorry, the bigger risk for me is if I’m trying to relaunch the Co-operative brand to the British public, that will be based on being decent and fair’.” He won the argument.

Those values will be at the centre of his relaunch of the Co-operative Group next May, when Sutherland will attempt to reset what the mutual and its operating companies mean to customers and members.

“We need to bind the whole of the Co-operative Group together with customers and with members. We need to ask how we can be different, and make it relevant to today. The older generation have got huge affection for the Co-operative Group, but the younger generation just see it as a functional alternative to Tesco or Barclays or whatever. The younger generation though have more similarity in the ethics and values with us, but they just don’t connect it with the Co-op.

“The other point is that just being a co-operative is not an excuse for not making money. We have to make a return, too. But when we make a return, what do we do with it? We give it to our members, we recycle it through local communities.”

Sutherland’s group strategy director, Paula Kerrigan (who worked with him at Kingfisher), has been working on the wider plan, alongside divisional executives and external consultants BCG.

Some of the ideas thrown up by the strategy overhaul have already gone to the group board, the 20-strong committee made up of lay Co-op members from across the country.

“It’s very valuable to have customers in the boardroom. And for the first time I think the group board felt they were involved in strategy.”

Although the Co-op chief executive doesn’t sit on the board, he says that isn’t a problem. “There have been some very big issues that we’ve worked through [with the board.] Not bank issues, other issues,” he says.

Despite the obvious challenges, Sutherland does not appear to regret taking on the role. “A lot of people have asked me since I joined, wouldn’t you rather be back at Kingfisher? And the answer is absolutely not; this is a fantastic British brand, and we have got the most wonderful opportunity to turn this group into what customers and members want from the Co-operative.”